Rent reduction in Corona times – “Legally interesting – Politically explosive”

The German federal government is trying to at least cushion the economic consequences of the Corona pandemic in several ways. One of these is a regulation that is likely to be aimed primarily at retailers severely affected by forced closures, namely to force landlords to adjust rents according to the principle of the so-called “cessation of the implicit of the contractual basis” (“Wegfall der Geschäftsgrundlage“). The following article proves that a hectic rush does not automatically make for the best possible regulation.

After the Grand Coalition had only recently rejected a legislative proposal by the party of the Greens on pandemic-related special regulations for commercial rents (cf. here and here, p. 24795, both in German), it decided at the so-called “State Minister Presidents’ Conference” on 13 December 2020 to introduce a legal presumption that significant restrictions in the actual ability to make use of the rented estate as a result of the Covid 19 pandemic can constitute a serious change in the implicit of the contractual basis in order to simplify negotiations between commercial tenants or lessees and owners (here, in German). No sooner said than done, the corresponding presumption provision introduced at the beginning of the year in Article 240 § 7 EGBGB (Introductory Code to the German Civil Code) now provides as follows:

“If, as a result of government measures to combat the COVID 19 pandemic, leased land or leased premises that are not residential premises cannot be used for the tenant’s business or can be used only with considerable restrictions, it shall be presumed that, in this respect, a circumstance within the meaning of § 313 BGB that has become the basis of the lease has changed seriously after the conclusion of the contract.”

However, the legislator has not only limited itself to an adjustment of the substantive legal situation, but with the introduction of § 44 EGZPO (Introductory Code to the German Code of Civil Procedure ) has also tried to accelerate the corresponding processes for the (judicial) adjustment of commercial leases.

Unfortunately, however, the efforts to accelerate proceedings are of little use, as the provision of Article 240 § 7 EGBGB already falls short. For, as a result of the provision, it is merely legally presumed that the pandemic has led to a substantial change in the contractual basis . However, the question of whether this renders fulfillment of the contract unreasonable within the meaning of § 313 BGB has not been answered.

This question has now been answered by the Higher Regional Court of Dresden in a decision from February 2021, according to which the tenant of a commercial property cannot reasonably be expected to maintain the previous rent in the event of the closure of his business premises due to a pandemic. Rather, a reduction of the basic rent by 50% is seen as justified because neither of the contracting parties had caused the disturbance of the basis of the business or had foreseen it. Accordingly, the court sees it as reasonable to distribute the associated burden equally between both parties. It is interesting that the court states obiter dicta, i.e. in passing, that the question of the extent to which the economic existence of the burdened contracting party is affected by the disruption of the basis of the contract is not relevant. However, the ruling also indicates that the payment of state aid to one of the contracting parties of the lease could possibly lead to a different assessment of the apportionment.

Conclusion: So far so good. With these new laws and the emerging corresponding supreme court rulings, commercial tenants can at least bring about a certain reduction in their operating costs. The question is, however, whether a reduction to 50% in the face of a 100% drop in turnover is sufficient to ensure the survival of the (probably primarily considered) retailers.

Furthermore, a number of real estate companies that have financed their properties through loans are also likely to run into difficulties as a result of the emerging case law. Since the provision of Art. 240 § 3 EGBGB does not apply to commercial borrowers, bank terminations of loans in case of default are possible.

All in all, the new regulation is likely to merely pass the problem on from the commercial tenants to the financing banks – without one of the groups actually being freed from the corona-related burdens. In other words, the problem is just being shifted, but not solved. This could hold political explosives.

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